Real Money

Global Macro: Beware of Weak Fundamentals at Market Highs

Weak fundamentals belie a record high stock market.

NEW YORK ( TheStreet) -- The debt deal boosted equity markets Thursday, but a fundamentally weak fourth quarter could dampen the market's parade at record highs.

Earnings season has just begun, and so far technology and financial companies have underperformed expectations. That has been masked by the the debt-ceiling resolution, as a U.S. default would have been catastrophic, compared to a few earnings misses.

Light revenue is a reason the Federal Reserve hasn't reduced its bond purchases just yet. The economy is improving, albeit at a gradual pace.

The potential end to stimulus made investors cautious in the third quarter, weighing on equity markets and consumer spending, and in turn on third-quarter results. The debt-ceiling debacle didn't help. It was a speed bump to record highs.

Still, the market is trading at record highs as investors flocked back into equities this week after waiting on the sidelines through much of September and October for a government budget to be passed and for the debt ceiling to be raised.

Monetary stimulus should continue through 2014 to make way for Janet Yellen, the nominee for Fed chairwoman, to get settled and to compensate for fiscal policy challenges. With so many hypothetical situations lying in front of markets the next few months, it is prudent to consult technical charts.

The chart below is of SPDR S&P 500 ( SPY). The index is trading at record highs at the upper bounds of an up-sloping wedge pattern. The pattern will act as major resistance for prices pushing higher toward 180 .

The catalysts for the up move have been continued stimulus and no debt default, not the kind of solid fundamentals that justify all-time highs.

The index may consolidate soon, as the move higher the past few days has been exponential. Algorithm traders can move prices vertically in a short period of time. Nonetheless, look for buying to die out in the near future and the fourth quarter to present an opportunity for overbought markets to correct lower.

At the time of publication the author had no position in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Andrew Sachais' focus is on analyzing markets with global macro-based strategies. Sachais is a chief investment strategist and portfolio manager at the start-up fund, Satch Kapital Investments. The fund uses ETF's traded on the U.S. stock market to gain exposure to both domestic and foreign assets. His strategy takes into consideration global equity, commodity, currency and debt markets. Sachais is a graduate of Georgetown University, where he earned a degree in Economics.